Saturday, December 15, 2007
The SSNIP Test and Market Definition with the Aggregate Diversion Ratio: A Reply to Katz and Shapiro
Posted by D. Daniel Sokol
Øystein Daljord (Norwegian Competition Authority), Lars Sørgard (Norwegian School of Economics and Business Administration), and Øyvind Thomassen (University of Oxford Economics) have written The SSNIP Test and Market Definition with the Aggregate Diversion Ratio: A reply to Katz and Shapiro.
ABSTRACT: The Hypothetical Monopolist or Small but Significant Non-transitory Increase in Prices (SSNIP) test defines the relevant market by determining whether a given increase in product prices would be profitable for a monopolist in the candidate market. The U.S. Merger Guidelines do not specify whether the SSNIP test should be performed with an increase in one price, some prices, or all prices in the candidate market. We argue that this should depend on characteristics of the market: if there are asymmetries between products, increasing only one price might be the best way to identify competitive constraints. Katz and Shapiro derive a one-price test criterion of critical loss in terms of the aggregate diversion ratio. Unfortunately, the derivation is incorrect. We show what the correct criterion should be.